Penn National Takes Ownership of $1B Resort

June 2, 2011
By Barbra Murray, Contributing Editor

Eight months after Penn National Gaming Inc.’s $230.5 million acquisition of all outstanding debt of The M Resorts L.L.C., developer of M Resort Spa Casino in Las Vegas, the gaming company has converted its debt ownership into full equity, and is now the owner of the $1 billion property.

This was no hostile takeover. Penn National’s acquisition of M Resort was simply the exercising of an option. In October 2010, when the company purchased the M Resort debt from Bank of Scotland plc, it also received the right to acquire the business in exchange for the outstanding debt obligations.

Anthony Marnell III of The M Resorts L.L.C. opened the doors of the casino hotel in 2009, having joined forces with his father, Tony Marnell, an architect and CEO of construction and development company Marnell Corrao Associates, to bring the premier gaming destination to life on 90 acres roughly 10 miles south of the Las Vegas Strip. No expense was spared. In addition to a 390-room hotel and 92,000 square feet of casino floor space, M Resort encompasses nine restaurants, a 23,000-square-foot spa and fitness center, over 60,000 square feet of meeting space, a 100,000-square-foot events piazza and a 4,700-space parking facility.

M Resort’s developer is no longer the owner but he is still very much a part of his creation, as Marnell has taken on the role of president of the property. “He did an excellent job building the property and his staying on is part and parcel of Penn National Gaming’s plans for M Resort going forward,” Joseph N. Jaffoni , principal with Jaffoni & Collins Inc., the investor relations agency firm representing Penn National, told CPE. The property marks Penn National’s entrée into Nevada’s casino market, which still has a long road to full recovery. However, the company took on ownership with its eyes wide open and is not intimidated by current conditions.

“Penn National Gaming’s strategy, first and foremost, is to get a good return on their investment, and that transcends the fact that M Resort is a billion-dollar development that they acquired for $230.5 million,” he said. The company has a multi-faceted plan. In addition to employing Marnell’s expertise of the local market, Penn National will institute a new marketing program.

Capitalizing on M Resort’s location will be part of the marketing endeavor. Sited at 12300 Las Vegas Blvd., the casino hotel provides easy access to I-15, which spans a handful of states including California, a target market for the property. Additionally, Penn National will rely on its database of over 12 million regional gaming customers–culled through the company’s portfolio of 26 gaming and entertainment facilities in 18 jurisdictions across the country and in Ontario, Canada.–to offer loyal visitors of other Penn National properties a premier Las Vegas gaming experience. “We have already been able to test the waters with this at M Resort and we have gotten very positive feedback,” Jaffoni noted. Penn National will also turn a brighter spotlight on its sizeable meeting space in an effort to lure more convention and meeting business. “We have ways to drive operating improvements.”

And if demand should warrant it down the road, Penn National will be able to diversify M Resort’s offerings. The original master plan for the site allows for the development of as much as 1 million square feet of retail space and a multi-screen movie complex. “If demand was such that the capital to do an expansion would give an appropriate return, then it could happen, but it definitely isn’t a near-term expectation,” he said. “A high return on investment is the focus for any Penn National capital investment, whether it’s the exchange of debt for equity like the M Resort deal, the acquisition of a new property or putting capital in a property they already own.”